11. Source of ratings

Institutions‟ IRC approaches may rely on either internal or external ratings. Internal ratings used for IRC purposes should be consistent with how they are derived in the IRB approach.

Institutions should have procedures in place for inferring a rating for non-rated positions. When credit spreads are available, their use for inferring a rating should be clearly documented. Likewise, the use of a default rating (i.e. a „fall-back‟ rating for positions where no observable data can be used to infer a rating) should be documented. Any rating system applied should, as far as possible, differentiate between relevant groups of positions.

An institution should have in place a documented hierarchy of sources of ratings for determining the rating of an individual position. If an institution uses different sources of ratings (e.g. internal and external ratings or different external rating

12 agencies‟ estimates), it should consistently map the ratings into a common Masterscale.